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Nature and scope of managerial economics

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Nature and scope of managerial economics

  1. 1. Nature and Scope of Business Economics
  2. 2. Nature of Managerial Economics 1. Close to Micro-Economics – finding solutions for different managerial problems of a particular firm (production schedules) 2. Operates against the backdrop of Macro-Economics – macroeconomic conditions of the economy are also seen as limiting factors for a firm to operate. (industrial policy and Inflation) 3. Normative Statements – one problem with normative statements is that they cannot be verified by looking at the facts, because they mostly deals with the future. (agreement or disagreement – L.P.G.) 4. Prescriptive Action – suggest the course of action from the available alternatives for optimal solution. (mention concept to given context) 5. Applied in Nature – case study method to conceptualize problem 6. Offers scope to evaluate each alternative - cost and revenue 7. Interdisciplinary – drawn from different subjects (as mentioned ) 8. Assumptions and Limitations – validity is not universal (changes)
  3. 3. Scope of Managerial Economics  Choice of business and the nature of products, that is, what to produce,  Choice of size of the firm, that is, how much to produce,  Choice of technology, that is, choosing the factor-combination  Choice of price, that is, how to price the commodity,  How to promote sales,  How to face competition,  How to decide on new investments,  How to manage profit and capital,  How to manage an inventory, that is, stock of both finished goods and raw materials. Operational issues of firms are of internal nature. Internal issues include all those problems which arise within the business organization and fall within the control of the management. Some of the basic internal issues are:
  4. 4. Concepts and Techniques of Managerial Economics MANAGERIAL DEDISION AREAS: • Production Analysis • Cost Control • Price Determination • Make or Buy Decisions • Inventory Decisions • Capital Management • Profit Management • Investment Decisions Optimal Solution Scope of Managerial Economics (Cont..) Fig : Scope and Decision Areas of Managerial Economics
  5. 5. Scope of Managerial Economics (Cont..) 1. Demand Decisions – Forecasting demand, Demand response with the changes of price and supply, impact of income and alternatives on demand , profit and demand relation etc.. 2. Input-Out put Decisions – Input relation with Output to maximize profit, production function, factors of production, cost and production relationship, analyze cost – out put relation in the short run and long run etc.. 3. Price -Output Decisions – production to determine price, understand price at different market structures, pricing policies, methods and strategies etc… 4. Profit related Decisions – BEP Analysis, Cost reduction and control, Ration Analysis, production needed to gain profit, reduce wastage etc…
  6. 6. Scope of Managerial Economics (Cont..) 5. Investment Decisions – Capital Budgeting decision, allocation and utilization of Investment, cost of capital, capital structure, to maximize return on capital etc….. 6. Economic Forecasting and Forward Planning – understanding major external factors like, government policy, competition, employment, labour, price and income levels and so on. Internal factors like finance, people, market and products. It is necessary to forecast the trends in the economy to plan for the future in terms of investments, profits, products and markets.
  7. 7. Thank You & Any Doubts Nature and Scope of Business Economics

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